‘We’ve never seen public finances get so bad in such a short time’

Robert Chote is having a good credit crunch. The youthful, lanky director of the independent Institute for Fiscal Studies just might be Britain's most influential economics analyst.

Dubbed a "one-man judge and jury", 41-year-old Chote is the man to whom politicians, the media and many in the City turn to make sense of the meltdown in the nation's finances. When Chancellor Alistair Darling unveiled his Budget last week, it was the IFS's verdict that made the most impact — and was quoted widely as fact.

Chote's number-crunchers declared that Britain faces a £90 billion black hole, that it will take "two full Parliaments of mounting austerity" to repair the "breathtaking" damage, and that public services face being hacked back far more than the Treasury has indicated as public borrowing hits £175 billion. It added that it could take until 2032 for national debt to fall back in line with Gordon Brown's old fiscal rules. No wonder the Prime Minister is said to be less than keen on Chote — and hasn't been since the 1990s when the IFS director was a Financial Times journalist.

Given Chote's undoubted influence, it is a surprise to find him in a navy-blue sweatshirt and jeans when we meet at the think-tank's headquarters in a modern block off Tottenham Court Road. Despite close links with the City (Morgan Stanley collaborates on research), Chote and his colleagues look like college lecturers. His office has a haphazard mix of hardback books and Treasury reports stacked in piles along one wall.

But he pulls no punches in his analysis of the Budget. "The thing that surprised you on the day and still stands out, notwithstanding the debate about whether the economy is going to recover as fast as the Treasury hoped, is how big a structural problem there is with the public finances," says Chote in his calm, easy manner. "If you look at the £175 billion of public borrowing, £140 billion is impervious to economic recovery — it is still going to be there when the economy does recover.

"If you had told me at the time of the last Budget a year ago that we'd be looking at a budget deficit of 12.5% of GDP [the £175 billion], my breath would have been taken away. We have never seen such a sudden deterioration in the public finances in such a short time."

The IFS reckons on a £90 billion black hole because tax revenues are falling and social security costs will soar. But Chote is wise enough to know statistics are not infallible. Much was made of the fact the Office for National Statistics said on Friday that GDP had dived 1.9% in the first quarter of 2009, contradicting the Budget's rosier forecast of a 1.6% drop, but he points out the ONS figure may be refined as more data become available: "Predicting growth in a particular quarter is a mug's game."

Chote is not convinced about the new 50% tax rate for those earning over £150,000 — IFS research suggests the old 40% level was the "revenue-maximising rate". And slashing tax relief on pension contributions (from 40% to 20%) for top earners is a double whammy. Taken together, they could raise far less revenue than expected, he warns.

But he believes that furore is a distraction. "In terms of overall magnitude, it is public spending that will take a hit. The idea we are dealing with the fiscal black hole by hitting the rich is a gross over-simplification."

He calculates a mighty 17% of capital investment will have to be cut, adding drily that it was "not abundantly clear from the way the Budget documentation was written".

Even though the Treasury may have been guilty of over-optimism about the growth in tax revenues in the boom years, Chote thinks it would have been hard to avoid the crisis we are now grappling with. "The consequences of [what happened in] the financial sector extend a long way beyond tax and spend."

Now the real test is how the gilts market will respond as the Government taps it for cash. "If the financial markets take the view that the UK is not going to deal [with soaring debt] as robustly as it should, we face higher interest rates, making it harder to borrow."

The IFS, which has charitable status and celebrates its 40th anniversary this year, has long had a reputation for dispassionate analysis. Chote, who has been in charge since 2002, has 46 staff on the payroll, plus around 16 academics who do part-time work. He says the IFS's credibility derives from two factors — academic rigour and a willingness to engage in public-policy debate. BBC journalists Evan Davis and Stephanie Flanders both cut their teeth as researchers.

Telegenic Chote has helped raise the think-tank's profile. "I am very conscious that I can't go bullshitting on TV, knowing that colleagues are serious people and doing serious work. I may have to talk in simple and relevant language, but it has to be based on rigour and good use of empirical evidence."

His family does not have a business background. His father, who threw the javelin for Britain in the 1948 Olympics, had an Army career. Raised in Southampton, Chote read economics at Cambridge. After a brief spell writing travel books, he joined the Independent on Sunday and was soon spotted by the FT.

He brushes off talk of being part of an FT "golden generation" (Robert Peston, Treasury mandarin John Kingman and a clutch of future national newspaper editors were contemporaries).

But Chote did make his mark during a four-year stint as economics editor, where he had a reputation for refusing to take Treasury dictation. A 1998 profile of the then Chancellor, that he wrote for Prospect magazine, concluded that Brown was a control freak who was not fit to be prime minister. "I don't think he liked it at the time," says Chote, with a half-smile. "Charlie Whelan [Brown's ex-press secretary] claimed I was rude about Gordon because of rivalry with Ed Balls [then a Treasury adviser and ex-FT journalist]. But Ed had already left by the time I arrived at the FT."

There were even rumours that Brown's circle tried to get him sacked. Chote responds that senior FT editors were "always very robust about telling people where to go".

Chote's wife, Sharon White, is a high-ranking civil servant in criminal justice, who used to work in Tony Blair's Downing Street Policy Unit. He maintains that her experiences didn't cloud his view of Brown. When I point out that the IFS website boasts several glowing tributes from Brown, he smiles again.

Chote and his wife, who married in 1997, live in Hampstead, where they have two young sons, and are regular churchgoers. He is looking forward to the general election but is open-minded about what he might do after that. He spent two years working at the International Monetary Fund in Washington as an adviser after the FT — he thinks we are a long way from needing an IMF bailout — but he does not want to go into politics. "The Civil Service is not impossible, or I could go back to journalism."

Chote insists he does not find it hard to stay independent: "No political party has a monopoly of wisdom or folly." Some people will disagree with the IFS's analyses, he says, but the key is to be open and transparent about its methods. "If you are making judgments, people can and will disagree. But it all rests on the basis of the analysis we've done."

"A year ago, if you had told me that we'd be looking at a budget deficit of 12.5% of GDP, it would have taken my breath away."